Reply #18: Balancing a budget in a recession is extreme

[karynnj]

Consider why our forefathers and all the leaders since then have not enacted a balanced budget amendment. The obvious reason to me is that they saw the need for the federal government - when warranted - could operate at a deficit. The need could be a war, a set of catastrophes or a time, like now, when it is important to be the "spender of last resort".

Another reason is the US infrastructure is crumbling. This affects our competitiveness. For those who travel outside the US, consider how the efficiency of the airports and the transportation affects your view of the country. Last year, I opted to take Amtrack to and from NYC and Boston, which is the best of our train system. I could not help but contrast it with the trip I took in Spain from Malaga to Madrid, which was much much nicer. On the way out, the difference was mostly just a difference in comfort level. It was far slower which would be more an issue for someone wanting to better use scarce time. On the way back, as the train broke down several times - finally needing to be towed into NYC - taking a total of about 7 hours, my thoughts were that this would make someone think that the US was really falling behind.

The Republicans use a bogus argument equating a family with the federal government - ignoring that the government has the ability to print money. But, even using that analogy, the argument for FORCING a balanced budget every year is now how most families operate.

Consider that the family car breaks down. Would the family be required to buy a replacement car with cash already in the bank or their current paycheck? I would assume that the norm is that they get an auto loan. This is the equivalent of the US having a deficit that year and the family debt is increased by the balance they owe on the car. Consider other prudent uses of the family "running a deficit" - imagine the roof on the home they own has deteriorated and they should replace it - rather than let it fail and cause damage to the house. Assume they do not have the savings to pay for this. The likelihood is that they take out a home equity line. Again it adds to the debt and they are likely running a deficit for the year.

Now, you might say, that the family does budget the cost of the payments on the auto loan or the home equity loan. But, this is equivilent to saying the US pays the interest on the debt. I would even make the argument that the true constraint on deficit spending and the debt is when the interest payments become too high and take up too much of the revenue. In the family's case that would mean that they are very constrained by what they have left after subtracting all their "interest payments." It would be bad if the family fell into a pattern of constantly spending money from their equity loan - unless they knew that the current expenses were atypically high and the current income atypically low.

In the case of the US, the size of the debt means more of the revenue is already spent on interest payments. However, just as with the family, this is a time when expenses are atypically high - high unemployment means high payments for that and it should be the role of the government to create jobs - stimulating the economy in the process. It is also a time when revenue is atypically low - because the economy is slow. This is similar to a time period where a family is very likely to run a deficit.

In addition, consider that the economy returning to closer to "normal" will automatically cause revenues to rise and costs to fall. This is why in the Clinton years, the deficits were repeatedly smaller than projected and they became surpluses years before anticipated. Now, what many economists suggest is something like NOT cutting spending or increasing taxing now (except possibly on the wealthiest) because doing so will further slow the economy - actually making the deficit worse - as well as causing pain. This further helps the Republicans as we head into an election with the economy worse than it has to be.

Here, the Republicans are using something that really is NOT a crisis to try to get things passed that they never would have support for otherwise. A balanced budget would starve the government - especially as they accompany it with a near impossible threshold for what needs to be done to raise taxes. The fact is that the tax rates are at a low for several decades already. Then consider their budget (Ryan's) eliminates estate taxes and capital gains and dividend taxes. What you will have is a huge shift of income to the wealthy - as their assets essentially grow untaxed by either taxes on income from capital investment or on taxes as it passes to the next generation. The robber barons of the 1890s would have loved these people.

What I don't get is how they have fooled the peons among the tea party into thinking they benefit.